Backup or Reliability Improvement Strategy for a Manufacturer Facing Heterogeneous Consumers in a Dynamic Supply Chain

Abstract

This paper examines a manufacturer's supply management strategies for mitigating yield risk in a complex dynamic supply chain. Two strategies can be adopted for the manufacturer: backup and reliability improvement. Consumers may select to leave (instant consumers) or wait (delaying consumers) when they confront the manufacturer's insufficient inventory. Utilizing the method of multi-agent modeling, a manufacturer and a supplier are modeled as the intelligent agents with the reinforcement learning behavior. The study shows that: 1) when the number of instant consumers is small, reliability improvement strategy should be selected; otherwise, the manufacturer should adopt a backup strategy; 2) only when mean yield is large enough, reliability improvement strategy is the optimal choice; and 3) if yield uncertainty is small, the manufacturer should choose reliability improvement strategy; otherwise, it is suitable to use a backup strategy. In addition, when the main supplier can determine its own wholesale price, it is found that: 1) when the mean yield is small, a lower wholesale price should be designed for the main supplier, to induce higher order quantity under backup strategy; and 2) the impact of yield uncertainty on the manufacturer's supply management strategy can be changed by the main supplier's adaptive pricing behavior.